Tuesday, November 10, 2009

Why China Overtook Korea in Shipbuilding

Korean shipbuilders took up the top 10 spots in the global industry in 2006. Back then, No. 5 STX Shipbuilding sought facility expansion. To emerge as a world class shipyard, it needed more than 3.3 million square meters of land, or far more than the 16,500 square meters the company secured around its shipbuilding site in Jinhae, South Gyeongsang Province, for the past five years. Due to uncooperative landowners and thick layers of regulation, the company instead turned toward Dalian, China, which offered better terms. At the same time, world No. 6 Hanjin Heavy Industries and Construction decided to build a new shipbuilding site at Subic Bay in the Philippines in the same year. As a result, more than 100,000 new jobs were created overseas, including those generated by partners of Korean companies.

Korea has lost its title of world shipbuilding leader for the first time in 10 years to China. China controlled 34.7 percent of world ship orders excluding those delivered from the total number of orders, or one percentage point more than Korea. Furthermore, Chinese shipbuilders won 142 contracts, or more than half of global orders, this year. China’s success is largely thanks to its domination of the lower-end vessel market with its large foreign reserves and orders placed with Beijing’s support. Though Korea is ahead of China in high value-added areas such as LNG ships and offshore plants, there is no room for complacency. At this pace, China could soon overtake Korea in the two areas.

China took over the world No. 1 spot largely thanks to the passion and dedication of its leadership, which never forgot to visit plants of large conglomerates whenever they came to Korea. For example, then Chinese Vice President Hu Jintao in 1998 visited the plants of Samsung Electronics, Hyundai Motors and Hyundai Heavy Industries when visiting Korea. He was followed by Wu Bangguo, chairman of the Standing Committee of China’s National People`s Congress, who visited the Pyeongtaek plant of LG Electronics in Gyeonggi Province, and the Ulsan factory of Hyundai Motors in South Gyeongsang Province in 2003. In 2007, Chinese Premier Wen Jiabao made an unprecedented visit to SK Telecom, leading many experts to speculate that China, dubbed “the world’s factory,” was no longer interested in benchmarking Korea’s manufacturing industry.

While Chinese politicians focused on nurturing their manufacturing sector including electronics, cars and shipbuilding, their Korean counterparts simply indulged in corporate bashing. Regulations forced Korean companies to waste three to five years just to get approval for a plant that took a year to build, but what did Korean politicians do? They strengthened regulations to further stifle corporate activity, such as putting a ceiling on total equity investment and restrictions on investment in the Seoul metropolitan area. These deplorable acts simply reaffirm Korea’s reputation as an impractical country. Unfortunately, this means it could be only a matter of time before China surpasses Korea in cars and electronics, followed by shipbuilding.